Importance of Micro Economics

Micro economics plays a vital role in the study of modern economic theory. It is important in the following ways as described below:

To understand the working of the economy:It helps us in understanding the working of a free enterprise economy. It gives us an idea about how major economic decisions are taken in a market economy.

Helpful in the efficient employment of resources:It suggests economizing, that is how efficiently the scarce available resources can be utilized in production process in an economy.

Helps in International Trade:Micro economics is used to explain gains from internal trade, external trade, foreign exchange, balance of payment, disequilibrium and in the determination of exchange rate.

Basis of welfare economics:The entire structure of micro economics has been built on the basis of price theory which is an important constituent of micro economics. It suggests the conditions of efficiency and explains how it can be achieved. It helps in improving the standard of living of population.

Helpful in understanding the consequences of taxation:Imposition of tax leads to reallocation of resources from one place to another. Micro economics explains how imposition of different types of direct and indirect taxes lead to attainment of social welfare.

Tool for evaluating economic policies:It helps the states and central government to frame economic policies like price policy, taxation policy etc. It also explains the condition of efficiency in production and consumption.

Construction and use of models:Micro economics construct and uses simple models in order to understand the actual economic phenomenon. It uses abstract models to explain the economic phenomenon.

Types of Micro EconomicsMicro economics is divided into three types. They are as follows:

Micro Statistics

Comparative Micro Statistcs

Micro Dynamics

They are explained in detailed description as follows:

Micro Statistics:It is that method of analysis which deals with relationships between two or more micro variables at a given time. It studies the equilibrium price of a commodity at a time, assuming that there is no change in demand and supply conditions. In this, we don't study the process by which demand and supply reaches equilibrium. It studies only the relationship between micro variables.

Comparative Micro Statistcs:It makes a comparative study of the relationship between the micro variables and equilibrium positions, without explaining how the new equilibrium is attained or what happens during the transition from one equilibrium to another.

Micro Dynamics:This particular type of micro economics, studies the process by which the economy reaches from one equilibrium to another. it explains continuously about the disequilibrium position before the final equilibrium is attained.

By this we have explained totally in brief detail about the Importance and different types of Micro Economics.Thank you.

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